Daily Fantasy

As the new NFL season kicks-off, it is nearly impossible to avoid ads for “Daily Fantasy” sites FanDuel and DraftKings. Instead of drafting and carefully tending to a roster of pros for a whole season, in hopes of claiming bragging rights over your friends and/or coworkers, the new version of Fantasy Sports lasts just a week (or even a day), in which you endeavor to best thousands of strangers for a piece of a jackpot that can exceed $1 Million. Before, hours could be spent agonizing over potential trades, waiver wire pickups, or who to play and who to consign to your proverbial bench. Now, constrained only by a salary cap, you choose your ideal lineup of players just for one game. While some see daily fantasy as another form of gambling, the “skill” aspect becomes apparent when you discover that most of the prizes go to a small group of players. Bloomberg has an article with the direct title: You Aren’t Good Enough to Win Money Playing Daily Fantasy Football. As Slate Money explains, the quants who have taken over high-frequency trading on Wall Street are likewise claiming the lion’s share of the bounty in daily fantasy. All those ads are need to make sure that there are enough fish and whales bringing the dumb money for the sharks to gobble up.

For example, the marquee contest on Draftkings has a total purse of $10M, with $2M going to the winner. Up to  572,500 entries at $20 a pop are allowed. The top 125,700 (22%) finish in the money, but the prize structure is pretty top-heavy (see below). $1.45M, around 13%, is  Draftking’s rake.

I’m no Shark, but it seems to me that the winner-take-most organization makes the strategy of Daily Fantasy much different than the old-fashioned kind. For example, Draftkings rewards placing many entries, and finding diamonds in the rough who will produce high stats but command low salaries. But the biggest change of all might be the shift toward “high-variance” teams. That is, a team with a high chance of a solid but not amazing performance might work for your company’s season-long league, but to be the best of 500,000 entries, you really have to go for broke.

For example, the performance of Brady and Gronk is highly correlated; if you pick both for the same entry, you are likely to get feast or famine of points. (Based on the results of week 1, probably much more of the former) But finishing last or 125,701 makes no difference. It only matters if you can crack the money-line. So instead of hedging, you’ve got to amplify the variance in hopes of a big day for all of your picks.

Prize Structure

1st $2,000,000.00
2nd $1,000,000.00
3rd $500,000.00
4th $250,000.00
5th $150,000.00
6th $100,000.00
7th – 8th $75,000.00
9th – 10th $50,000.00
11th – 12th $40,000.00
13th – 14th $30,000.00
15th – 16th $25,000.00
17th – 18th $20,000.00
19th – 20th $15,000.00
21st – 25th $10,000.00
26th – 30th $7,500.00
31st – 40th $6,000.00
41st – 50th $5,000.00
51st – 75th $4,000.00
76th – 100th $3,000.00
101st – 150th $2,500.00
151st – 200th $2,000.00
201st – 300th $1,500.00
301st – 400th $1,000.00
401st – 600th $750.00
601st – 800th $500.00
801st – 1000th $400.00
1001st – 1250th $300.00
1251st – 1500th $250.00
1501st – 1750th $200.00
1751st – 2000th $150.00
2001st – 4000th $100.00
4001st – 6000th $75.00
6001st – 8000th $60.00
8001st – 15000th $50.00
15001st – 25000th $40.00
25001st – 45000th $35.00
45001st – 75000th $30.00
75001st – 125700th $25.00